In Re Timber & Transport Kumasi- Krusevac Co. Ltd. Zastava Bonsu & Anor [1981] GLR 256.

IN RE TIMBER AND TRANSPORT KUMASI-KRUSEVAC CO., LTD. ZASTAVA BONSU AND ANOTHER [1981] GLR 256.

 JUDGMENT OF SOWAH J.S.C.

STATUTORY REF.
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Sowah J.S.C. delivered the judgment of the court. It is appropriate for the proper appreciation of the issues involved, to start with the history of the company, Timber and Transport Kumasi-Krusevac Co., Ltd., hereinafter referred to as TAT-KK Co., Ltd.

On 8 March 1966 there was registered with the Registrar of Companies, a private limited liability company, under the name and style of Timber & Transport Co., Ltd. (TAT) whose object, inter alia, was the exploitation and exportation of timber. The company had a subsidiary known as TAT Furniture and Construction Co., Ltd. The shareholders of the Timber and Transport Co., Ltd. were principally Osei Bonsu, Snr. who held over 95 per centum, the others being his son Osei Bonsu, Jnr. and his nephew Osei Tutu.

It does appear from the affidavits filed by the parties that from the period 1966 to 1971 the company ran at a loss and that by 1971 the losses had exceeded the million-cedi mark. In the words of the appellant, by 1971 the company was in a “paralytic state of malignant insolvency.” In passing, it ought to be mentioned that Osei Bonsu, Snr. admits in his affidavit the company’s insolvency but says its liabilities were not over a million but about ›791,890.90. He also admitted that by 1971 one of the company’s creditors, namely, Barclays Bank (Ghana) Ltd., had found it necessary to appoint a receiver to the Company.

It is not quite clear how the Yugoslavia company came into the picture, whether upon the invitation of Osei Bonsu, Snr. or at its own request. Suffice it to note that on 20 July 1971 an agreement was entered into between Timber and Transport Co., Ltd. (TAT) acting by its managing director, Osei Bonsu, Snr. of the one

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part and Sumako Industrijski Kombinat Crevna Zastava, a corporation registered under the laws of Yugoslavia (hereinafter referred to as Zastava or the petitioner) of the other part.

The substance of the agreement was that the two companies would merge and a new company would be established under the name and style of Timber and Transport Kumasi-Krusevac Co., Ltd. which would engage in a common enterprise in the timber industry. Osei Bonsu, Snr. would transfer 50 per centum of the shares in TAT to Zastava; the shares in the furniture company would be transferred to the new company. Zastava would contribute the sum of US$250,000 as a consideration for its shareholding. The new company would be responsible for all the debts of the Timber and Transport Co., Ltd., with the understanding that Osei Bonsu, Snr. would be personally liable for such debts as existed at the date of the agreement. The repayment of the debts would in the first instance be deducted from the dividends due to Osei Bonsu, Snr. but Zastava at its discretion, would also contribute towards its liquidation, such sums as Zastava would pay would be refunded to that company by Osei Bonsu, Snr.

The new company had a board of four directors, two of whom were to be nominated by Zastava, the remaining two by Osei Bonsu, Snr. There were in the agreement, inter alia, two important provisions, clauses 8 and 15 which we consider should be reproduced in extenso:

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“Clause 8. The management of the new company as well as of TAT Furniture, whether as to day-to-day production, or as to any other matter, shall be in the exclusive competence and control of Zastava, who shall exercise the said competence and control through the aforesaid managing director or any other person nominated by Zastava and for the time being acting as such in the event that the substantive managing director is temporarily absent from Ghana or is incapacitated by bodily or mental infirmity or illness, or that the post of substantive managing director is temporarily vacant for any reason. ‘Managing director’ in this agreement shall accordingly be construed to include any person for the time being acting as such as herein provided. The managing director shall be responsible to the board of directors and shall co-operate with the other members thereof in all cordiality and good faith. Clause 15. Upon coming into force and effect as aforesaid, this agreement shall be and remain irrevocable for ten years, and accordingly no member or director of the new company may during the term of ten years immediately following upon coming into force of this agreement, present a resolution to the

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board of directors or an application to court, seeking the liquidation or winding-up whether voluntary or involuntary of the new company to an end. After the expiration of the said ten years this agreement shall continue in force from year to year, and any member or director of the new company who then desires to bring the existence of the new company to an end shall give in writing not less than one year’s notice to the board of directors of any step he intends to take for achieving that desire.”

(The emphasis is ours.) The rationale behind the clause is not difficult to fathom; it is to maintain the integrity of the company as a going concern during the currency of the agreement.

Notwithstanding clause 15, Zastava on 6 February 1979 presented a petition for winding-up of the joint enterprise under the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180). The learned judge before whom arguments were placed decided that clause 15 was binding on Zastava, the petitioner, and dismissed the petition in limine. It was from this dismissal that the appeal is brought before us. Zastava alleges in the affidavit verifying the petition that the new company under its management almost immediately began to show results. Within the first year it made a profit of ›76,870. By 1976 it had paid all the debts of the Timber and Transport Co., Ltd. and has become viable. By 1978 it made a gross profit of ₵1,600.00. Zastava’s affidavit further averred that from 1978 onward, Osei Bonsu, Snr. endeavoured to have the 1971 agreement altered so to be relieved of his obligation to repay the old debts. Further and perhaps the more serious allegations were that he was not only interfering with the control and management of the company, but has also managed to get Zastava’s representatives expelled from the country. At the time the petition was presented, he had completely taken over the management of the company per vim. Zastava alleges further that Osei Bonsu, Snr. has by conduct and overt acts abrogated the agreement of 1971. It says that Osei Bonsu, Snr. had issued a writ against Zastava claiming, inter alia, rescission of the contract, a declaration that the contract is discharged and damages for breach. The writ was reproduced as exhibit 10 attached to the petitioner’s affidavit. It shows on its face that it was filed on 16 January 1979. It was for these reasons that Zastava, for good measure, petitioned for a winding-up to salvage such assets that it had invested in the joint enterprise. The petition was filed on 6 February 1979 some three weeks after the respondents’ writ of summons.

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At the hearing of the petition before the High Court, Mr. Kom, counsel for the respondents, raised a preliminary objection that in view of clause 15 of the agreement prohibiting the presentation of a petition within the ten-year period, the petition was incompetent and should not be entertained. Issue was accordingly joined and arguments heard by the learned judge on the effect of the clause. The objection was upheld and the petition dismissed.

In this court, Mr. Tsikata, counsel for the petitioner, repeated the arguments advanced before the learned High Court judge that clause 15 offends against section 4 (1) of the Bodies Corporate (Official Liquidation) Act, 1963 (Act 180), consequently the clause is illegal and unenforceable. For this proposition he relies on In re Peveril Gold Mines Ltd. [1898] 1 Ch. 122, C.A. The headnote reads:

“The right given by s. 82 of the Companies Act, 1862, to a contributory to petition for the winding-up of the company cannot be excluded or limited by the articles or association of the company.”

The learned High Court judge, with respect, dealt very exhaustively in his ruling on the submission and rejected it. This court accepts and approves the ruling on this issue. In re Peveril did not decide that all constraints on the right of a shareholder to present a petition are invalid. It depends upon the nature and ambit of the constraint. Lindley M.R. observed at p. 131:

“I do not intend to decide whether a valid contract may or may not be made between the company and an individual shareholder that he shall not petition for the winding-up of the company. That point does not arise now.”

We do not see any reason which should prevent the parties from entering into such contract as is contained in clause 15 of the agreement. Indeed there is much to be said for that clause. The parties would wish to maintain the company’s integrity as a going concern during the currency of the agreement.

Mr. Tsikata urged the broad proposition that parties cannot by contract oust the jurisdiction of the courts to examine matters contained in that contract; the only exception to this rule is where the contract provides for an arbitration in the event of disagreement; this exception is now buttressed by statute. In reply, Mr. Kom pointed out that there has not been an ouster of the jurisdiction of the court. Clause 15 cannot be construed as a complete ouster because in the event of a breach there were several other remedies open to the parties. The innocent party could maintain an action

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in court in respect of the breach; the only remedy which would not avail him was to petition for a winding-up of the company before the expiry of the ten- year period.

The crucial issue which in our view was avoided by the High Court is whether the agreement was still binding on the parties. On this issue, we are thrown back on first principles and particularly on the effect of breaches of an agreement by one or other of the parties. The principle which emerges from a long line of decisions is that where one party manifests a clear intention to be no longer bound by the terms of his contract or where he openly repudiates it, the innocent party may treat the contract as at an end and seek such remedies as are open to him. Where the breach hits at the root or substance of the contract, in other words, where the breach is fundamental, the innocent party may accept the breach and treat it as absolving him from his own obligations under the contract. The question whether a breach is fundamental is, of course, for the court to determine: see Wallis, Son & Wells v. Pratt and Haynes [1910] 2 K.B. 1003,
C.A.; Sweet & Maxwell Ltd. v. Universal News Services Ltd. [1964] 3 All E.R. 30 and Joseph v. Boakye [1977] 2 G.L.R. 392 at p. 402, C.A.

It seems to us that the averments contained in the petitioner’s affidavit, if established, do indicate that by 1978 the respondents had clearly shown by conduct that they did not regard the 1971 contract as binding. If this is so, then the petitioner will be justified in treating the agreement as at an end and fortify its position by taking such steps as are necessary. We are of the view that the respondents ought not be allowed to approbate and reprobate their contract. The agreement of 1971 in which clause 15 forms part is either effective and binding on all the parties or it is not. The respondents cannot be permitted in equity to plead against the appellants an agreement which they themselves have so clearly spited.

We think the learned judge ought not to have dismissed the petition in limine. Accordingly we will allow the appeal, remit the petition to the High Court for it to take its normal course.

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